ABLE Accounts for Disability Expenses
Achieving a Better Life Experience (ABLE) accounts allow eligible individuals to save and invest money in tax-advantaged plans to pay qualified disability expenses. Expenses that may qualify include housing, education, transportation, health, prevention and wellness, employment training and support, assistive technology, personal support services, and other disability-related expenses.
Along with tax advantages, ABLE accounts offer the opportunity to save for future disability needs without jeopardizing eligibility for Supplemental Security Income (SSI), Medicaid, and other public benefits. Funds in ABLE accounts generally do not count toward means/resource testing limits for these benefits.
Who Can Open an ABLE Account?
If you have a significant disability that was diagnosed before age 26, you may be eligible to open an ABLE account. You must be receiving SSI or Social Security Disability Insurance (SSDI), or obtain disability certification from a physician.
If you have a family member who qualifies, you may be able to open and oversee an ABLE account on that person’s behalf if you are the parent or legal guardian of a minor or someone who is legally unable to manage his or her account, or you have power of attorney. The individual with the disability remains both the account owner and the beneficiary. Each eligible beneficiary can have only one ABLE account.
How Do ABLE Accounts Work?
You can open an ABLE account in your own state if it has an ABLE program, or in any state that allows nonresidents to join (most do). As of mid-2018, almost 40 states offered ABLE accounts.1 Contributions can be made by the account owner or by family members, friends, employers, and others who want to provide financial support.
Contribution limits. In general, contributions from all donors combined during the year cannot exceed the annual gift tax exclusion ($15,000 in 2018 and 2019). However, see New ABLE Savings Opportunities above. Each state sets its own lifetime limit (at least $350,000 in many states), which is also the state’s maximum for Section 529 college savings plans. But when an ABLE account exceeds $100,000, SSI payments will be suspended until the balance falls to $100,000 or less.
Tax benefits. Any earnings accumulate tax deferred at the federal level and in some cases at the state level. When money is withdrawn, the earnings on distributions will be tax-free if used to pay qualified expenses. There is no federal income tax deduction, but some states offer tax incentives to residents.
Medicaid payback provision. If an ABLE account owner dies and he or she was receiving Medicaid, a state is allowed to file a claim against the account balance for medical expenses that were paid during the period that the ABLE account was open. (Not all states will pursue payback.) Any funds remaining after the state is reimbursed may be distributed to heirs.
Participating in an ABLE account may involve investment risk, including the possible loss of principal, and there can be no assurance that any investing strategy will be successful. Carefully consider a portfolio’s level of risk, charges, and expenses before investing. Read the program’s official disclosure statement and applicable prospectuses, which contain this and other information about the investment options, underlying investments, and investment company.
Before investing in an ABLE plan, consider whether your state offers an ABLE program that provides residents with favorable state tax benefits. Consult a tax professional for more information. ABLE accounts may be protected from creditors if you invest in your own state’s program, depending on the state.